The recent announcement of the Governor of the Central Bank of Sudan puts an effective end to the fully-fledged Islamic economic/financial system in Sudan. This means there is now only one country left in the world, which can claim to have a fully-fledged Islamic economic system, namely the Islamic Republic of Iran. In the 1980s and 1990s, the literature used to refer to Pakistan, Iran and Sudan as the three countries that had announced their intent to Islamise their economic systems fully. In 2001, the new military regime of Parvez Musharraf officially reversed the policy and made Pakistan a “dual” economy, leaving Iran and Sudan as the remaining two contenders for having fully-fledged Islamic economic systems.
It all started with the military regime of Muhammad Zia ul Haq who announced in 1977 that Pakistan was officially a country aiming to have a fully-fledged Islamic economic system. This was followed by Iran in 1979, and then Sudan wherein the government in 1992 announced its commitment to an economy-wide implementation of Islamic laws. Apparently, what Pakistan started as a potential global movement in the 1970s, it also heralded unwinding of what it attempted to pioneer.
Now that the notion of an “Islamic economic system” has almost failed, there is an emphasis on establishing the so-called global and national centres of excellence for Islamic (or Shari’a) economy. Dubai championed the idea and now the likes of Indonesia are pursuing the dream. Is it going to be a new route to successful implementation of Islamic economic system or another lollipop put into the mouths of Muslim masses to quieten them? Only the time will tell. One may even think that it isn’t even a lollipop as a vast majority of Muslims isn’t sufficiently interested in an Islamic economic system. If so, it could simply be considered as political manoeuvring on part of the leaders in the Muslim world to highlight (in a futile way) importance of Islamic economic system.
Whatever be the case, it should be a cause of concern for individual Islamic financial institutions (and more so for those who have invested billions of funds in them), as it is another step towards their gradual marginalisation and eventual disappearing into the annals of history. In an environment where even three out of four Muslims believe that Islamic banking doesn’t offer sufficiently differentiable financial products, it is only fools who must believe in sustainability of such a system. This lack of sustainability of the so-called “dual” system will lead to the failure of Islamic banks and financial institutions in offering financial solutions superior to their conventional counterparts and, in fact, differentiable in economic terms. Mere Shari’a compliance will attract no more than one in four Muslims. Alarmingly, it will become increasingly difficult for Islamic banks and financial institutions to even find this “fourth” customer.
One must ask some difficult questions like this:
Why did HSBC wind up its global Islamic banking business?
Where is Noriba Bank today?
Why once buoyant players like BNP Paribas, Deutsche Bank, Merrill Lynch and others are involved in Islamic finance for just face saving?
Why is the annual growth rate of the global industry on a constant decline (see Global Islamic Finance Report 2020-21)?
Honest answers to these questions will lead to some meaningful understanding of what is happening in the global Islamic financial services industry.
The apparent failure of the so-called fully-fledged Islamic economic systems in Pakistan and Sudan (and imminently in Iran) may have multiple dimensions and reasons. In case of Iran and Sudan, it could very well be due to the international sanctions as well. The fact of the matter, however, is that these countries have failed to present Islamic economic system as capable of solving socio-economic problems faced by their people.
Does this mean that Islamic leadership has been in wrong hands? If political leadership isn’t sufficiently suitable for championing Islamic causes, is it the religious intelligentsia that must be given a more prominent role in this respect? Probably, as the Islamic banks and financial institutions advised by Shari’a scholars have done a lot better than the macroeconomies of the Muslim countries run by the so-called able bureaucrats and politicians.
Also, it is worth pondering to see if private Islam is better than the public profile of Islam as depicted by governments in the Muslim world. Previous privatised attempts for renaissance of Islam (e.g., jihad) have by and large failed and have indeed costed Muslim communities dearly in terms of loss of human life and more importantly in reputation. Privatisation of Islam through financial institutions has its own dangers, and one must not take their eyes off the potential harms that private Islamic banks may cause under the so-called “dual” banking systems. Complete privatisation of fatwa, for example, as opposed to regulated Shari’a governance, has resulted in numerous Shari’a controversies that might have otherwise been avoided.
These are some of the fundamental questions one must pause for a while to answer. We may not have immediate answers to all these, but at least it must allow us to check where we stand and whether this is the right place to be in.